SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1995 0-14188
I.R.E. PENSION INVESTORS, LTD. - II
(Exact Name of Registrant as Specified in its
Certificate of Limited Partnership)
Florida 59-2582239
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Fort Lauderdale, Florida 33304
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (954) 760-5200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
$250 Per Unit - Minimum Purchase 20 Units/
8 Units for an Individual Retirement Account, Keogh Plans and
Corporate Pension Plans
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
Documents Incorporated by Reference
Portions of the Prospectus of the Registrant, dated October 4, 1985, are
incorporated by reference into Part IV.
<PAGE>
PART I
ITEM 1. BUSINESS
I.R.E. PENSION INVESTORS, LTD.-II, a limited partnership organized under the
laws of the State of Florida as of September 30, 1985, is primarily engaged in
the business of operating and holding for investment, income producing real
properties. Registrant did not utilize borrowings in connection with the
purchase of its properties. The Partnership commenced a public offering of its
units of limited partnership interest in October 1985. The required escrow
relative to Registrant was reached and subscription funds were transferred to
Registrant on December 26, 1985 ("Inception"). The Registrant closed the
offering in October 1987, having raised $12,373,750 in capital and issued 49,491
units of limited partnership interest at $250 per unit. Galleria Professional
Building and a minority interest in One West Nine Mile Joint Venture were
acquired during 1986 and the Federal Express Distribution Center was acquired
during 1987. During December 1991, the One West Nine Mile Joint Venture was
sold. No properties were purchased or sold during 1995.
Uninvested cash of Registrant is deposited in demand accounts with commercial
banks and may be invested temporarily in U.S. Treasury Bills and certificates of
deposit or other interest bearing accounts or investments.
Alan B. Levan and I.R.E. Pension Advisors II, Corp. are the general partners of
Registrant. I.R.E. Pension Advisors II, Corp., as Managing General Partner,
manages and controls Registrant's affairs and has general responsibility and the
ultimate authority in all matters affecting Registrant's business.
Affiliates of the general partners of Registrant also own and operate their own
improved real estate and may have investment objectives and policies similar to
those of Registrant. Registrant may be in competition with other limited
partnerships served by affiliates of the Managing General Partner or by other
companies wherein the individual general partner is a controlling stockholder.
On December 31, 1995, Registrant had no employees. The balance of information
required in Item 1 is either inapplicable or not material to an understanding of
the Registrant's business.
ITEM 2. PROPERTIES
The properties listed below are not utilized by Registrant but are held for
investment. All are zoned for their current uses.
Galleria Professional Office Building 60,965 square owned
Fort Lauderdale, FL feet leasable
Federal Express Distribution Center 37,500 square owned
Jacksonville, FL feet leasable
ITEM 3. LEGAL PROCEEDINGS
Kugler, et al., (formerly Martha Hess, et al.) on behalf of themselves and all
others similarly situated, v. Gordon, Boula, Financial Concepts, Ltd., KFB
Securities, Inc., et al. In the Circuit Court of Cook County, Illinois. On or
about May 20, 1988, an individual investor filed the above referenced action
against two individual defendants, who allegedly sold securities without being
registered as securities brokers, two corporations organized and controlled by
such individuals, and against approximately sixteen publicly offered limited
partnerships, including Registrant, interests in which were sold by the
individual and corporate defendants.
Plaintiff alleged that the sale of limited partnership interests in the
Partnership (among other affiliated and unaffiliated partnerships) by persons
and corporations not registered as securities brokers under the Illinois
Securities Act constitutes a violation of such Act, and that the Plaintiff, and
all others who purchased securities through the individual or corporate
defendants, should be permitted to rescind their purchases and recover their
principal plus 10% interest per year, less any amounts received. The
Partnership's securities were properly registered in Illinois and the basis of
the action relates solely to the alleged failure of the Broker Dealer to be
properly registered.
In November 1988, Plaintiff's class action claims were dismissed by the Court.
Amended complaints, including additional named plaintiffs, were filed subsequent
to the dismissal of the class action claims. Motions to dismiss were filed on
behalf of the Partnership and the other co-defendants. In December 1989, the
Court ordered that the Partnership and the other co-defendants rescind sales of
any plaintiff that brought suit within three years of the date of sale. In
accordance with the Court's order, in April 1990, funds were placed in escrow to
rescind sales of 179 Partnership units. Approximately $52,000 was placed in
escrow representing $34,700 for the rescission of units and $17,300 for interest
thereon. The financial statements reflected the rescission of units as a
reduction of partners' capital and included the interest portion as a charge to
general and administrative, other in 1990.
Plaintiffs appealed, among other items, the Court's order with respect to
plaintiffs that brought suit after three years of the date of sale. In February
1993, the Appellate court ruled that the statute of limitations was tolled
during the pendency of the class action claims. The Partnership and the other
co-defendants sought leave to appeal before the Illinois Supreme Court and on
October 6, 1993, the leave to appeal was denied. Plaintiff's claims are now
pending in Circuit Court. In March 1994, plaintiffs filed a purported Class
Action Amendment seeking to consolidate and amend their claims. The amendment
sought to continue the claims against the predecessor partnerships along with
their general partners and sought to add BFC as a defendant. The plaintiffs also
moved for class certification. Before plaintiffs responded or the motions were
heard, plaintiffs filed a new motion for leave to file consolidated class action
amendments and a new motion for class certification. The new version of
plaintiffs pleadings are substantially identical to the pleadings filed in March
1994. Motions to dismiss and to deny class certification have been filed. In
August 1995, the Court granted plaintiffs' motion to consolidate and granted
plaintiffs' leave to file an amended complaint. According to the Court's ruling,
the consolidated class action may include the claims of all individuals who
joined the individual actions and the claims of all persons who bought relevant
partnership interests but who never had joined the prior actions. This ruling
expanded the number of potential claims. In September 1995, plaintiffs filed a
consolidated class action amendment. In October 1995, an answer was filed
admitting certain allegations but denying that plaintiffs had demonstrated
entitlement to recovery under the Illinois Securities Act. In December 1995,
plaintiffs filed a motion for summary judgment arguing that the Court already
has ruled against defendants on the only outstanding issue, whether class
members gave the required notice within six months of the time they learned of
their rights. A hearing for summary judgment was held in March 1996. The Court
has indicated that they will rule on the summary judgment motion during April
1996.
Plaintiffs filing for summary judgment includes class members with original
investments of $67,750 and total claims relating to those adjustments of
approximately $110,000 plus attorney's fees. A provision of $45,000 has been
made in the accompanying financial statements for interest on amounts that would
be due upon rescission, however, the financial statements do not reflect a
rescission of the units subject to the Court ruling. Accordingly partners'
capital, units outstanding, per unit information, including income (loss) per
unit amounts, have not been adjusted for the potential rescission of units.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST AND
RELATED SECURITY HOLDER MATTERS
a) There is no established public trading market for Registrant's units of
limited partnership interest.
b) There are approximately 1,980 holders of units of limited partnership
interest as of December 31, 1995.
c) See Item 6.-Selected Financial Data regarding Registrant's distributions,
incorporated herein by reference as if set forth herein.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
ITEM 6. SELECTED FINANCIAL DATA
For the five years ended December 31, 1995.
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Revenues $ 520,867 520,980 524,908 543,753 588,142
========== ========== ========== ========== ==========
Net income (loss) $ (201,622) (32,453) 2,237 (656,016) 93,716
========== ========== ========== ========== ==========
Net income (loss) per
weighted average
limited partnership
unit outstanding $ (4.05) (.65) .04 (13.17) 1.88
========== ========== ========== ========== ==========
Total assets $ 8,199,883 7,615,420 7,321,582 6,364,252 6,230,003
========== ========== ========== ========== ==========
Partners' capital $ 7,819,057 7,231,845 6,987,522 6,084,946 5,932,102
========== ========== ========== ========== ==========
Distributions per
weighted average
limited partnership
unit outstanding $ 5.00 11.25 5.00 5.00 5.00
========== ========== ========== ========== ==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF I.R.E. PENSION INVESTORS, LTD. - II
A description of the Partnership's original investment properties follows:
* Galleria Professional Building ("Galleria") - A 61,000 square foot office
building located in Fort Lauderdale, Florida.
* One West Nine Mile Holiday Inn Hotel ("Holiday Inn") - A 211 room hotel
building located in Hazel Park, Michigan through a joint venture in which
the Partnership had an 8.7% interest. This property was sold in December
1991.
* Federal Express Distribution Center ("Federal Express") - A 38,000 square
foot warehouse building located in Jacksonville, Florida.
The Partnership was organized on September 30, 1985, to engage in acquiring,
improving, operating and holding for investment, income producing real
properties. The Partnership's objectives were to invest in properties which
would: 1) Preserve and protect the Partnership's original capital; 2) Provide
long-term appreciation in the value of the Partnership's properties; and 3)
Provide cash distributions to the Limited Partners.
In December 1986, the Partnership acquired Galleria and a minority interest in
Holiday Inn. In December 1987, the Partnership acquired Federal Express. All of
the above properties were net leased to their tenants. The lease payments on
Holiday Inn, sold in December 1991, were determined solely as a percent of the
hotel's revenue.
Rental income increased for the year ended December 31, 1995 as compared to the
comparable period in 1994 as a result of a scheduled rental increase at Federal
Express., effective July 1995.
Interest income increased for the year ended December 31, 1995 as compared to
the comparable periods in 1994 and 1993 primarily due to increases in funds
available for investment and yields on those investments.
Other income decreased for the year ended December 31, 1995 and 1994 as compared
to the same period in 1993 due principally to decreased fees from investor
transfers of partnership units.
During the fourth quarter of 1994, the carrying value of Galleria was reduced
approximately $686,000 to its estimated fair value. This was based upon the
existing lease terms as indicated on note 2 of Notes to Financial Statements.
This $686,000 provision reduced net income for the 1995 fiscal year.
General and administrative expense to affiliates decreased for the year ended
December 31, 1995 as compared to the 1994 and 1993 comparable periods primarily
due to decreased costs associated with administrative and accounting service
reimbursements. These cost reimbursements are associated with filing
requirements to regulatory agencies, tax return preparation, general accounting
services and monitoring of pending litigation.
Other general and administrative expenses decreased for the year ended December
31, 1995 as compared to the comparable period in 1994 primarily due to a
reduction in auditing fees and bank charges associated with the partners'
distribution account.
When the Partnership acquired the Galleria Professional Building in 1986, it
executed a net lease with the seller, leasing the property back to the seller on
a totally net basis. The lease requires a minimum annual rental of $217,000 per
annum plus 10% of the property income, as defined, between $217,000 and $467,000
and 50% of the property income in excess of $467,000. Based on operations of the
property, reflected in information provided by the tenant, no percentage rent is
to be paid for 1995.
At December 31, 1995, Pension II had cash and cash equivalents of approximately
$471,000 and approximately $1.4 million in Treasury Bills included in securities
available for sale. From 1986 through 1989, the Partnership paid distributions
equal to approximately 7% of original capital. Based upon Holiday Inn's
operations, the January 1990 scheduled decline in minimum annual cash rent from
Galleria, the potential costs associated with the litigation discussed in note 6
of the notes to financial statements, the potential costs associated with the
asbestos at the Holiday Inn and in order to maintain an adequate level of
liquidity, distributions for the first three quarters of 1990 were reduced to 4%
per annum of original capital. With the additional annual reduction in rent
payments of approximately $250,000 from the September 1990 lease modification on
Galleria, distributions were further reduced to 2% per annum of original capital
commencing with the distribution during the fourth quarter of 1990. During March
1992, the Partnership made a distribution of approximately $300,000,
representing the Partnership's proportionate share of the cash proceeds received
from the sale of the One West Nine Mile Holiday Inn. Management is of the
opinion that the Partnership's liquidity, based on its current activities is
adequate to meet anticipated, normal operating requirements during the near
term.
In addition to the items discussed above, the Partnership's long term prospects
will be primarily affected by future net income at Galleria and renewal of the
Federal Express lease. Additionally, the Partnership might have to pay out
approximately $110,000 plus attorney's fees in connection with the Kugler
litigation. Due to the uncertain economic climate in general and the real estate
market in particular, management cannot reasonably determine the Partnership's
long term liquidity position.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets - December 31, 1994 and 1995
Statements of Operations - For each of the Years in the Three Year Period
ended December 31, 1995
Statements of Partners' Capital - For each of the Years in the Three Year
Period ended December 31, 1995
Statements of Cash Flows - For each of the Years in the Three Year Period
ended December 31, 1995
Notes to Financial Statements
ITEM 14. FINANCIAL STATEMENT SCHEDULES
III. Properties and Accumulated Depreciation - December 31, 1995.
All other schedules are omitted as the required information is either not
applicable or is presented in the financial statements and related notes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
I.R.E. Pension Investors, Ltd. - II:
We have audited the financial statements of I.R.E. Pension Investors, Ltd. -
II (a Florida Limited Partnership), as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
financial statements and financial statement schedule are the responsibility
of I.R.E. Pension Investors, Ltd. - II's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of I.R.E. Pension Investors, Ltd.
- - II, at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
March 26, 1996
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Balance Sheets
December 31, 1994 and 1995
Assets
1994 1995
---- ----
Cash and cash equivalents $ 267,806 470,925
Securities available for sale 1,274,253 1,350,087
Investments in real estate:
Office building 5,782,761 5,782,761
Warehouse building 2,247,267 2,247,267
--------- ---------
8,030,028 8,030,028
Less accumulated depreciation (3,211,512) (3,624,114)
--------- ---------
4,818,516 4,405,914
Other assets, net 3,677 3,077
---------- ---------
$6,364,252 6,230,003
========== =========
Liabilities and Partners' Capital
Accrued expenses 40,853 45,366
Accounts payable 17,730 27,160
Other liabilities 218,678 223,988
Due to affiliates 2,045 1,387
--------- ---------
Total liabilities 279,306 297,901
Partners' capital:
49,312 limited partnership units issued and
outstanding 6,084,946 5,932,102
--------- ---------
$6,364,252 6,230,003
========== =========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Operations
For each of the Years in the Three Year Period ended December 31, 1995
1993 1994 1995
---- ---- ----
Revenues:
Rental income $ 489,147 489,147 496,290
Interest income 32,360 53,276 91,562
Other income 3,401 1,330 290
--------- --------- ---------
Total revenues 524,908 543,753 588,142
--------- --------- ---------
Costs and expenses:
Depreciation 412,602 412,602 412,602
Provision to state real estate
at fair value - 686,000 -
Property operations:
Property management fees to affiliate 4,891 4,891 4,963
Other 8,961 8,651 7,235
General and administrative:
To affiliates 49,606 39,989 32,113
Other 46,611 47,636 37,513
------- --------- ---------
Total costs and expenses 522,671 1,199,769 494,426
------- --------- --------
Net income (loss) $ 2,237 (656,016) 93,716
======= ========= ========
Net income (loss) per weighted average
limited partnership unit outstanding $ .04 (13.17) 1.88
======= ======== =======
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Partners' Capital For each of the Years in
the Three Year Period ended December 31, 1995
Limited General
Partners Partners Total
-------- -------- -----
Balance at December 31, 1992 $7,228,334 3,511 7,231,845
Limited partner distributions (246,560) - (246,560)
Net income 2,215 22 2,237
---------- ------ ----------
Balance at December 31, 1993 6,983,989 3,533 6,987,522
Limited partner distributions (246,560) - (246,560)
Net (loss) (649,456) (6,560) (656,016)
---------- ------ ----------
Balance at December 31, 1994 6,087,973 (3,027) 6,084,946
Limited partner distributions (246,560) - (246,560)
Net income 92,779 937 93,716
--------- ------ ---------
Balance at December 31, 1995 $5,934,192 2,090 5,932,102
========= ====== =========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Cash Flows
For each of the Years in the Three Year Period Ended December 31, 1995
1993 1994 1995
---- ---- ----
Operating Activities:
Net income (loss) $ 2,237 (656,016) 93,716
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 412,602 412,602 412,602
Provision to state real estate
at fair value - 686,000 -
Non-cash portion of rental income (33,828) (33,828) (33,828)
Changes in operating assets and liabilities:
Increase (decrease) in accrued
expenses, accounts payable, other
liabilities and due to affiliates (15,687) (20,926) 52,423
Decrease (increase) in other
assets, net (1,143) (9,660) 600
-------- ------- -------
Net cash provided by operating
activities 364,181 378,172 525,513
-------- ------- -------
Investing Activities:
Redemption and sale of securities
available for sale - - 2,567,409
Purchase of securities
available for sale - (1,265,073) (2,643,243)
-------- ---------- ----------
Net cash provided(used) in
investing activities - (1,265,073) (75,834)
-------- ---------- ----------
Financing Activities:
Limited partner distributions (246,560) (246,560) (246,560)
-------- --------- ---------
Net cash used by financing
activities (246,560) (246,560) (246,560)
-------- --------- ---------
Increase (decrease) in cash and
cash equivalents 117,621 (1,133,461) 203,119
Cash and cash equivalents at
beginning of year 1,283,646 1,401,267 267,806
--------- --------- ---------
Cash and cash equivalents
at end of year $ 1,401,267 267,806 470,925
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
I.R.E. Pension Investors, Ltd. - II (the "Partnership") was organized on
September 30, 1985 in accordance with the provisions of the Florida Uniform
Limited Partnership Act to invest in, hold and manage income producing real
estate. A sufficient amount of capital was raised to allow funds to be released
from escrow to the Partnership on December 26, 1985. The Partnership closed its
offering of limited partnership units in October 1987 after having raised
$12,373,750.
The Managing General Partner has complete authority in the management and
control of the Partnership. I.R.E. Pension Advisors II, Corp. is the Managing
General Partner and Alan B. Levan is the individual General Partner of the
Partnership. The General Partners may serve in the same capacity for other
entities having similar investment objectives. Should any conflicts of interest
arise among these entities, the management of the managing general partners
will, at their sole discretion, resolve such conflicts.
Basis of Financial Statement Presentation - The financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the statements of financial condition and income and expenses for
the periods presented. Actual results could differ significantly from those
estimates. A material estimate that is susceptible to significant change in the
next year relates to the determination of the allowance to state real estate at
fair value.
Compensation to General Partners and Affiliates
The General Partners and/or their affiliates are entitled to receive
compensation only as specified by the Partnership Agreement. The determination
of amount and timing of payment is subject to certain limitations and to cash
distribution preferences of limited partners. Following is a brief description
of such compensation and the services to be rendered:
Underwriting Commissions:
Due upon the sale of Partnership units of interest.
Non-recurring Acquisition Fees:
Principally for evaluating and selecting real property for potential
purchase by the Partnership.
Property Management Fee:
Due for services in connection with the continuing professional property
management of the Partnership properties.
Partnership Management Fee:
Due for services rendered in evaluating and selecting properties for the
Partnership, reviewing cash requirements including the determination of
the amount and timing of distributions, if any, making decisions as to the
nature and terms of the acquisition and disposition of such properties,
selecting, retaining and supervising consultants, contractors, architects,
engineers, lenders, borrowers, agents and others and otherwise generally
managing the day-to-day operations of the Partnership.
Subordinated Real Estate Commissions:
Related to sales of Partnership properties.
Interest in Cash from Sales or Financing:
Due also for services as listed under "Partnership Management Fee".
Interest in Net Income and Net Loss as Determined for Federal Income Tax
Purposes:
1% of net losses and the greater of (a) 1% of net income or (b) an amount
of such net income which is in proportion to the percentage of cash
distributed to the General Partners as a Partnership Management Fee or for
their Interest in Cash From Sales or Financing.
Cash and cash equivalents
Cash equivalents include liquid investments with a maturity of three months or
less.
Securities Available for Sale
The Partnership's securities are available for sale. In accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FAS 115") issued in May 1993 by the
Financial Accounting Standards Board ("FASB"), these securities are carried at
fair value, with any related unrealized appreciation or and depreciation
reported as a separate component of partners capital. At December 31, 1994, the
Partnership owned one treasury bill that matured in May 1995 in which cost
approximated fair value. At December 31, 1995, the Partnership owned one
treasury bill that matures in February 1996 in which cost approximated fair
value.
Properties
The properties are stated at the lower of cost or fair value in the accompanying
statements of financial condition. An allowance is provided, by property, in the
event the carrying value of the property is greater than its fair value. The
office building and distribution center are depreciated using the straight-line
method over an estimated useful life of 20 years.
Income Taxes
The payment of income taxes is the obligation of the individual partners;
therefore, there is no provision for income taxes in the accompanying financial
statements. The Partnership's tax returns have not been examined by Federal or
state taxing authorities.
Net income or loss reported for income tax purposes involves, among other
things, various determinations relating to properties purchased. Although
management of the Partnership believes that such determinations are appropriate,
there can be no assurance that the Internal Revenue Service will not contest the
Partnership's tax treatment of various items or, if contested, such treatment
will be sustained by the Courts. Further, there is a possibility that the
Treasury will amend existing regulations or promulgate new regulations, and such
action may be retroactive. Accordingly, the tax status of the Partnership and
the availability of prior and future income tax benefits to limited partners may
be adversely affected.
Financial Reporting
The Partnership maintains its accounting records on a modified cash basis. The
accompanying financial statements are presented on an accrual basis.
Rental Income
Rental income is recognized under the operating method whereby aggregate rentals
are reported as income over the life of the lease and the costs and expenses are
charged against such revenue. Rental income, from leases with non-level
payments, is recognized ratably over the term of the lease.
New Accounting Standards
In 1995, the FASB issued Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." ("FAS 121"). FAS 121 requires that long-lived assets, assets
held for sale and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss for long-lived
assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. FAS 121 is effective for
financial statements for fiscal years beginning after December 15, 1995. Earlier
application is encouraged. Management is of the opinion that adoption of FAS 121
did not have a material effect on financial position or results of operations,
upon adoption on January 1, 1996.
(2) PROPERTIES
Following is a brief description of the property investments made by the
Partnership.
Galleria Professional Building
On December 31, 1986, the Partnership purchased a six story office building
containing 60,965 square feet of net leasable area in Fort Lauderdale, Florida.
The Partnership owns a leasehold interest in a long-term ground lease for two
parcels of land which encompass the building site and parking areas. The lease
commenced in 1955 and expires in 2054. Ground rent is currently $12,500
annually. Every 20 years the ground rent is adjusted to be equal to five percent
of the then current appraised value of the ground. The last adjustment was in
1975. The Partnership also purchased the rights to the parking agreement with
the Galleria Mall. The agreement requires rental payments and common area
maintenance charges which currently aggregate approximately $19,500 annually.
The parking agreement and ground lease have concurrent terms.
Simultaneous with the acquisition of the property, the Partnership executed a
net lease with the seller, leasing the Property back to the Seller on a totally
net basis. The terms of the lease require a minimum annual rental of $217,000
per annum plus 10% of the property income, as defined, between $217,000 and
$467,000 and 50% of the property income in excess of $467,000. In accordance
with generally accepted accounting principles, the rental income will be
recognized ratably over the term of the lease. The ratable minimum rent through
2001 (the date of the buy/sell option discussed below) after the modification of
the lease on September 1990 is $250,824 per year and such amount is recognized
annually for financial statement purposes. The seller, as lessee, is responsible
for any and all costs associated with the property, including but not limited to
operating expenses, insurance, taxes, the ground lease and parking agreement
payments.
Commencing 2002, the Partnership and the tenant have a buy/sell option for this
property, which may be exercised by either the Partnership or the tenant. In
essence, this option gives the tenant the right to purchase the property at its
then fair market value or allows the Partnership to terminate the tenant lease.
As part of this option, $6,000,000 plus the excess between approximately
$100,000 per month and actual rent paid during the lease term (less certain
defined offsets) can constitute the Partnership's offer under the option. In
such event, if the tenant fails to purchase the property at such price, the
lease would be terminated and the Partnership would have no obligation to pay
any part of the offering price to the tenant.
At December 31, 1995, the Galleria Professional Building was approximately 97
percent occupied, with an average leasing rate of approximately $15.41 per
square foot. As indicated above, the lessee is responsible for any and all costs
associated with the property. Galleria Professional Building is located in Fort
Lauderdale Florida on the Middle River Waterway. There are several mid-rise
office buildings in the area. Galleria Mall, a large regional shopping center,
is located east of this property. Rental rates of the mid-rise office buildings
in close proximity to the Galleria Professional Building were similar to those
being charged by the Galleria Professional Building.
During the fourth quarter of 1994, the carrying value of Galleria was reduced
approximately $686,000 to its estimated fair value, based upon the existing
lease terms as indicated above.
Federal Express Distribution Center
On December 15, 1987, the Partnership purchased, from an unaffiliated seller, a
one story 37,500 square foot office/warehouse building in Jacksonville, Florida.
The building was designed for and is occupied solely by Federal Express
Corporation pursuant to a ten year lease which commenced June 8, 1987 and
expires June 30, 1997. No negotiations have yet been held regarding extension of
the lease. The lease requires minimum annual rental payments as follows:
Term Amount
---------------------- --------
Through June 1992 $216,660
July 1992 to June 1995 $238,320
July 1995 to June 1997 $252,612
The lease further requires the tenant to pay all expenses associated with the
property including repairs and maintenance, real estate taxes, insurance and
utilities.
Leases
The aggregate sum of the minimum lease rental payments to be received for the
Galleria Professional Building and the Federal Express Distribution Center over
the five succeeding years is approximately as follows:
Year ending December 31,
------------------------------------------------
1996 1997 1998 1999 2000
-------- ------- ------- ------- -------
$ 470,000 343,000 217,000 217,000 217,000
======= ======= ======= ======= =======
The above table does not consider exercise of renewal options by existing
tenants or renewal of leases expiring during above periods.
(3) COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
During the year ending December 31, 1993, 1994 and 1995 compensation to general
partners and affiliates were as follows:
1993 1994 1995
---- ---- ----
Reimbursement for administrative
and accounting services $ 49,606 39,989 32,113
Property management fees 4,891 4,891 4,963
----- ------ ------
Total $ 54,497 44,880 37,076
====== ====== ======
(4) RECONCILIATION OF NET INCOME AND PARTNERS' CAPITAL
The following reconciliation provides details of the nature and amount of
differences between net income (loss) and partners' capital per the accompanying
financial statements and the Partnership tax return.
1993 1994 1995
-------- -------- ------
Net income (loss):
Amount reported for financial statement
purposes $ 2,237 (656,016) 93,716
Difference in financial statement/tax
depreciation expense 202,719 202,719 202,719
Difference between accrual basis of
accounting used for financial
statements and the method used for
income tax purposes (46,674) (29,472) (31,444)
Adjustment due to fair value
considerations in the carrying
value of real estate for financial
statement purposes - 686,000 -
------- ------- -------
Amount reported for income tax purposes $ 158,282 203,231 264,991
======== ======== =======
Partners' capital:
Amount reported for financial statement
purposes $6,987,522 6,084,946 5,932,102
Difference in financial statement/tax
depreciation expense 1,383,001 1,585,720 1,788,439
Difference between accrual basis of
accounting used for financial
statements and the method used for
income tax purposes 307,823 278,351 246,907
Difference due to fair value
considerations in the carrying value
of real estate for financial statement
and income tax purposes - 686,000 686,000
Cost of raising capital, deducted from
partners' capital for financial
statements and included in other
assets for income tax purposes 1,501,488 1,501,488 1,501,488
---------- ---------- ----------
Amount reported for income tax purposes $10,179,834 10,136,505 10,154,936
========== ========== ==========
(5) OTHER LIABILITIES
Other liabilities at December 31, 1994 and 1995 consists primarily of unearned
rental income, which, as stated in the Summary of Significant Accounting
Policies (note 1), arises from leases with non-level payments being recognized
ratably over the term of the lease.
(6) LITIGATION
During May 1988, an individual investor filed an action against two individual
defendants, who allegedly sold securities without being registered as securities
brokers, two corporations organized and controlled by such individuals, and
against approximately sixteen publicly offered limited partnerships, including
Registrant, interests in which were sold by the individual and corporate
defendants.
Plaintiff alleged that the sale of limited partnership interests in the
Partnership (among other affiliated and unaffiliated partnerships) by persons
and corporations not registered as securities brokers under the Illinois
Securities Act constitutes a violation of such Act, and that the Plaintiff, and
all others who purchased securities through the individual or corporate
defendants, should be permitted to rescind their purchases and recover their
principal plus 10% interest per year, less any amounts received. The
Partnership's securities were properly registered in Illinois and the basis of
the action relates solely to the alleged failure of the Broker Dealer to be
properly registered.
In November 1988, Plaintiff's class action claims were dismissed by the Court.
Amended complaints, including additional named plaintiffs, were filed subsequent
to the dismissal of the class action claims. Motions to dismiss were filed on
behalf of the Partnership and the other co-defendants. In December 1989, the
Court ordered that the Partnership and the other co-defendants rescind sales of
any plaintiff that brought suit within three years of the date of sale. In
accordance with the Court's order, in April 1990, funds were placed in escrow to
rescind sales of 179 Partnership units. Approximately $52,000 was placed in
escrow representing $34,700 for the rescission of units and $17,300 for interest
thereon. The financial statements reflected the rescission of units as a
reduction of partners' capital and included the interest portion as a charge to
general and administrative, other in 1990.
Plaintiffs appealed, among other items, the Court's order with respect to
plaintiffs that brought suit after three years of the date of sale. In February
1993, the Appellate court ruled that the statute of limitations was tolled
during the pendency of the class action claims. The Partnership and the other
co-defendants sought leave to appeal before the Illinois Supreme Court and on
October 6, 1993, the leave to appeal was denied. Plaintiff's claims are now
pending in Circuit Court. In March 1994, plaintiffs filed a purported Class
Action Amendment seeking to consolidate and amend their claims. The amendment
sought to continue the claims against the predecessor partnerships along with
their general partners and sought to add BFC as a defendant. The plaintiffs also
moved for class certification. Before plaintiffs responded or the motions were
heard, plaintiffs filed a new motion for leave to file consolidated class action
amendments and a new motion for class certification. The new version of
plaintiffs pleadings are substantially identical to the pleadings filed in March
1994. Motions to dismiss and to deny class certification have been filed. In
August 1995, the Court granted plaintiffs' motion to consolidate and granted
plaintiffs' leave to file an amended complaint. According to the Court's ruling,
the consolidated class action may include the claims of all individuals who
joined the individual actions and the claims of all persons who bought relevant
partnership interests but who never had joined the prior actions. This ruling
expanded the number of potential claims. In September 1995, plaintiffs filed a
consolidated class action amendment. In October 1995, an answer was filed
admitting certain allegations but denying that plaintiffs had demonstrated
entitlement to recovery under the Illinois Securities Act. In December 1995,
plaintiffs filed a motion for summary judgment arguing that the Court already
has ruled against defendants on the only outstanding issue, whether class
members gave the required notice within six months of the time they learned of
their rights. A hearing for summary judgment was held in March 1996. The Court
has indicated that they will rule on the summary judgment motion during April
1996.
Plaintiffs filing for summary judgment includes class members with original
investments of $67,750 and total claims relating to those adjustments of
approximately $110,000 plus attorney's fees. A provision of $45,000 has been
made in the accompanying financial statements for interest on amounts that would
be due upon rescission, however, the financial statements do not reflect a
rescission of the units subject to the Court ruling. Accordingly partners'
capital, units outstanding, per unit information, including income (loss) per
unit amounts, have not been adjusted for the potential rescission of units.
<PAGE>
SCHEDULE III
I.R.E. Pension Investors, Ltd.-II
Properties and Accumulated Depreciation
December 31, 1995
Galleria Federal Express
Professional Distribution
Office Bldg. Center
Ft. Lauderdale Jacksonville
Florida Florida Total
-------------- ------------- ---------
Acquisition Date 12/86 12/87
Encumbrances $ - - -
========= ========= ====
Initial Costs:
Land $ - 470,981 470,981
Building and
Improvements 6,285,472 1,771,786 8,057,258
--------- --------- ---------
6,285,472 2,242,767 8,528,239
--------- --------- ---------
Improvements:
Costs capitalized
subsequent to
acquisition:
Land - 945 945
Building and
Improvements 183,289 3,555 186,844
--------- --------- ---------
183,289 4,500 187,789
--------- --------- ---------
Allowance to state real
estate at fair
value (686,000) - (686,000)
--------- --------- ---------
(686,000) - (686,000)
--------- --------- ---------
Gross Amount:
Land - 471,926 471,926
Building and
Improvements 5,782,761 1,775,341 7,558,102
--------- --------- ---------
Total 5,782,761 2,247,267 8,030,028
========= ========= =========
Accumulated
Depreciation $ 2,906,598 717,516 3,624,114
========= ========= =========
Life on which
depreciation
is computed 20 years 20 years
======== ========
<PAGE>
SCHEDULE III Continued
I.R.E. Pension Investors, Ltd.-II
Reconciliation of Cost and Accumulated Depreciation For each of
the Years in the Three Year Period ended December 31, 1995
1993 1994 1995
-------- ------ ------
Cost:
Balance at beginning of period $ 8,716,028 8,716,028 8,030,028
Allowance to state real
estate at fair
value - (686,000) -
--------- --------- -----
-
Balance at end of period $ 8,716,028 8,030,028 8,030,028
========= ========= =========
Accumulated Depreciation:
Balance at beginning of period $ 2,386,308 2,798,910 3,211,512
Additions:
Depreciation 412,602 412,602 412,602
--------- ---------- ----------
Balance at end of period $ 2,798,910 3,211,512 3,624,114
========= ========= =========
The aggregate basis for Federal income tax purposes (not reduced by accumulated
depreciation) of the above properties was approximately $8,716,000 at December
31, 1995.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Registrant has no directors or officers.
a) Directors.
Listed below are the directors of I.R.E. Pension Advisors II, Corp.,
Managing General Partner of Registrant, all of whom are to serve until the
election and qualification of their respective successors unless sooner
removed from office:
NAME AGE POSITIONS HELD
---------------------- --- -------------------
Alan B. Levan 51 Director since 1985
Earl Pertnoy 69 Director since 1985
Carl E. B. McKenry, Jr. 66 Director since 1985
b) Executive Officers.
Listed below are the executive officers of I.R.E. Pension Advisors II,
Corp., all of whom are to serve until they resign or are replaced by the
Board of Directors:
NAME AGE POSITIONS HELD
---------------------- --- -------------------
Alan B. Levan 51 President since 1985
Glen R. Gilbert 51 Senior Vice President
since 1985; Chief
Financial Officer since
1987; Secretary since 1988
c) Certain Significant Employees.
Not applicable.
d) Family Relationships.
Not applicable.
e) Business Experience.
ALAN B. LEVAN formed the I.R.E. Group in 1972. Since 1978, he has been
the Chairman of the Board, President, and Chief Executive Officer of BFC
Financial Corporation (or its predecessor companies), a financial
services and savings bank holding company. He is also Chairman of the
Board and President of I.R.E. Realty Advisors, Inc., I.R.E. Properties,
Inc., I.R.E. Realty Advisory Group, Inc., U.S. Capital Securities, Inc.,
and Florida Partners Corporation. Mr. Levan is also Chairman of the Board
and Chief Executive Officer of BankAtlantic Bancorp, Inc. Mr. Levan is
also an individual general partner and an officer and a director of the
corporate general partners of various public limited partnerships
(including the Registrant), all of which are affiliated with BFC
Financial Corporation.
<PAGE>
GLEN R. GILBERT has been Senior Vice President of BFC Financial
Corporation since 1984, Chief Financial Officer since 1987 and Secretary
since 1988. Mr. Gilbert has been a certified public accountant since
1970. Mr. Gilbert serves as an officer of Florida Partners Corporation
and of the corporate general partners of various public limited
partnerships (including the Registrant), all of which are affiliated with
BFC Financial Corporation.
EARL PERTNOY has been for more than the past five years a real estate
investor and developer. He has been a director of BFC Financial Corporation
and its predecessor companies since 1978. He is a director of the corporate
general partners of various public limited partnerships (including the
Registrant) all of which are affiliated with BFC Financial Corporation.
CARL E. B. McKENRY, JR. is the Director of the Small Business Institute
at the University of Miami in Coral Gables, Florida. He has been
associated in various capacities with the University since 1955. He has
been a director of BFC Financial Corporation since 1981 and is a director
of the corporate general partners of various public limited partnerships
(including the Registrant) all of which are affiliated with BFC Financial
Corporation.
f) Certain Legal Proceedings.
None.
ITEM 11. EXECUTIVE COMPENSATION
a) Cash Compensation.
The Registrant has no officers or directors.
The Registrant did not pay salaries or expenses of the officers and
directors of the general partner of the Registrant in 1995, except for
travel and other expenses directly related to activities of the Registrant.
b) Compensation Pursuant to Plans.
Registrant has no annuity, pension or retirement plan for any director,
officer or employee.
c) Other Compensation.
Not applicable.
d) Compensation of Directors.
Registrant has no directors.
e) Termination of Employment and Change of Control Arrangement.
Not applicable.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) No person owns 5% or more of Registrant's voting securities.
b) Registrant has no officers or directors. The following information is
provided with respect to units owned by directors and officers of the
managing general partner.
(3)
AMOUNT AND
(2) NATURE OF (4)
(1) NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
----------------- ---------------------- ----------- --------
(i)
Units of Limited Alan B. Levan 20 Direct 0% (approx.)
Partnership 1750 E. Sunrise Blvd.
Interest Ft. Lauderdale, FL 33304
All other directors and
officers of the Managing
General Partner as a
group 0 Direct .0%
--------- ---
TOTAL 20 Direct .0% (approx.)
========= ===
(i) Alan B. Levan is a general partner of Registrant and is President and
Director of the Managing General Partner.
c) Registrant knows of no contract or other arrangement that could result in
a change in control of registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a) & b) During the year ending December 31, 1995, the following entities
received the fees and payments indicated for services rendered with
respect to the Registrant:
NAME AND
RELATIONSHIP TO REGISTRANT TRANSACTION AMOUNT
-------------------------- ----------------- --------
BFC Financial Corporation Reimbursement for
or subsidiaries, administrative and
Affiliates of the General accounting services $ 32,113
Partners
Property management fees $ 4,963
c) Indebtedness of Management.
None.
d) Transactions with Promoters.
Not applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A-1. See Item 8. Financial Statements and Supplementary Data.
A-2. See Item 8. Financial Statements and Supplementary Data.
A-3. Exhibits:
(3) Articles of incorporation and by-laws. Limited Partnership
Agreement set forth as Exhibit A to the Prospectus of the
Partnership dated October 4, 1985, as filed with the Commission
pursuant to Rule 424(c), is hereby incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including
indentures - Not applicable.
(9) Voting trust agreement - Not applicable.
(10) Material contracts - Not applicable.
(11) Statement re computation of per share earnings - Not
applicable.
(12) Statements re computation of ratios - Not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders - Not applicable.
(18) Letter re change in accounting principles - Not applicable.
(19) Previously unfiled documents - Not applicable.
(22) Subsidiaries of the Registrant - Not applicable.
(23) Published report regarding matters submitted to a vote of
security holders - Not applicable.
(24) Consents of experts and counsel - Not applicable.
(25) Power of attorney - Not applicable.
(27) Financial data schedule - Included as Exhibit 27.
(28) Additional exhibits - None.
(29) Information from reports furnished to state insurance regulatory
authorities - Not applicable.
B. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
No annual report or proxy material for the year 1995 has been sent to the
Partners of the Partnership. An annual report will be sent to the Partners
subsequent to this filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
I.R.E. PENSION INVESTORS, LTD. - II
Registrant
By: I.R.E. Pension Advisors-II, Corp.,
Managing General Partner
-----------------------
By: /S/ Alan B. Levan
Alan B. Levan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Managing General
Partner on behalf of the Registrant and in the capacities and on the dates
indicated.
/S/ Alan B. Levan March 26, 1996
- -------------------------------------------------------
Alan B. Levan, Director and Principal Executive Officer
/S/ Earl Pertnoy March 26, 1996
- -------------------------------------------------------
Earl Pertnoy, Director
/S/ Carl E.B. McKenry, Jr. March 26, 1996
- -------------------------------------------------------
Carl E. B. McKenry Jr., Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 FORM 10-K AND IS QUALIFIED IN ITS EVTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000775440
<NAME> I.R.E. PENSION INVESTORS, LTD. - II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 470925
<SECURITIES> 1350087
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8030028
<DEPRECIATION> 3624114
<TOTAL-ASSETS> 6230003
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5932102
<TOTAL-LIABILITY-AND-EQUITY> 6230003
<SALES> 0
<TOTAL-REVENUES> 588142
<CGS> 0
<TOTAL-COSTS> 494426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 93716
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93716
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
